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Craig and LaDonna Allen are trying to establish a college fund for their son Spencer, who just turned three today. They plan for Spencer to withdraw $10,000 on his eighteenth birthday and $11,000, $12,000, and $15,000 on his subsequent birthdays. They plan to fund these withdrawals with a 10-year annuity, with the first payment to occur one year from today, and expect to earn an average annual return of 8 percent.
a. How much will the Allens have to contribute each year to achieve their goal?
b. Create a schedule showing the cash inflows (including interest) and outflows of this fund. How much remains on Spencer’s twenty-first birthday.
A company is trying to decide whether to buy a part from suppliers, produce the part while using manual assembly, or produce the part with an automated assembly system. The company expects an annual volume of 185,000 parts. What other considerations ..
The management of Dorsch Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $4,100 per ton, and ingot can be sold without further processing for $2,400 per ton. Prepare a report..
Assume that the default intensity is 3% per year and the recovery rate is 35%. The bond is callable at $110. - Use a three-time-step tree to calculate the value of the bond. What is the value of the conversion option?
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $60,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value.
You borrowed $700 at 5% compounded quarterly. Your payments are $150 at the end of each year. How many years will you make payments on the loan?
If the appropriate interest rate is 8.16 percent, what is the future value of these investment cash flows six years from today?
Thatcher Corporation's bonds will mature in 16 years. The bonds have a face value of $1,000 and an 7.5% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050.
Suppose 40.98-strike call priced at 4.5603; 41-strike call priced at 4.5732; 41.02-strike call priced at 4.5860. Find good approximations for Greeks ? at stock price 40.
Estimate the value of leased assets. If you misestimate the average life to be 10 years, how large will the valuation error be?
In November 2006, Citi groups stock (NYSE:C) was trading at $49.59. Following the credit crisis on 2007-2008 and by at the end of October 2009, Citigroup stock price has plummeted to $4,27 Several banks went under, and the other saw their stock price..
Assume the firm's target capital structure is 60 percent equity and 40 percent debt with after tax costs of 18% and 10.5% respectively. Assume the following cash follows: CF0 = -$1,000, CF1 = $700, CF2 = $700. What is the NPV?
Proposition I (with Corporate Taxes) Firm value increases with leverage VL = VU + TC B. Proposition II (with Corporate Taxes) Some of the increase in equity risk and return is offset by the interest tax shield 5. Based on the second proposition, what..
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